Comparison of Federal Tax Programs 2006

For the past 10 years, I have been using TurboTax to do my taxes. Living in Texas, I only have Federal Income Taxes to consider. Generally, I use a program as a double-check of what I know and to produce neater forms to file. Over time I have been simplifying my tax situation -- children grown and gone, 401(k) and IRA for retirement, savings in simple mutual funds. So my taxes are pretty simple -- income, some 1099's from mutual funds, property taxes and mortgage income, charital contributions.

Part of the draw of using TurboTax was that you got a free version of Quicken, both made by Intuit. But, over time, Intuit has raised the price of the TurboTax, and then required the Deluxe version, while there seemed to be little if any improvement in Quicken. So this year, we went with just Basic TurboTax, and skipped the "free" Quicken.

And this year, I noticed an ad in Money magazine saying that I could download a free version of TaxCut for Money magazine readers from www.taxcut.com/moneymagazine . So I figured this was an easy way to compare them.

TurboTax Basic for 2006

• TurboTax comes on a CD and installed itself.

• It imported information from last year's TurboTax files, which filed in my name, address, and basic information.

• I entered my W2 and 1099 information.

• TurboTax was able to download dividend information directly from Fidelity but was unable to do so from Vanguard .

• TurboTax repeatedly popped up a screen asking if I didn't want to upgrade to the Premier version. This got real annoying.

• I have 9 or 10 mutual fund 1099's that needed to be reported. Mostly these were the same as for last year, so TurboTax had a list of them. But with all the screen space available on a 19 inch monitor, it created a scrollable window for these that only showed 3 or 4 of them. After the first few, I had to scroll down to get the next one, go fill out its information and then return to this screen where I was again positioned at the top of the list and had to scroll down again, and again, and again.

• This problem was even worse on the Income Summary. There are 22 possible sources of income. Most of them (19) didn't apply to me. I couldn't be sure without checking each one. Again, the button to go to the next one was only at the bottom of the screen, and so you had to scroll down to continue, then come back for the next income source and scroll down again, and again. It would have been much simpler if it just put you back at the same position that you were when you went back to these pages.

• I ended up getting a refund, about $1800. But TurboTax insisted that I needed to file quarterly payments of estimated taxes. I carefully make sure that my withholding covers my taxes to avoid this complication, but I don't understand why the program would think that I need to make estimated payments when I'm getting a refund.

• The error check found an error -- I haven't received one of my 1099's so I just left it blank. It would not allow the files to be finished with a zero entry. While the error screen showed the error, it would not let me fix it. I had to delete the form, and there was no convenient way to do that. Once I was in this mess, the "Back" button wouldn't work, so it was hard to get back to a reasonable screen.

• All in all, it took about an hour and half, and printed official looking forms with all the numbers that I needed. It was hard to get Quicken to only print the forms I wanted -- it insisted on printing extra worksheets for my files. A 10 page return required 15 pages to print.

TaxCut for 2006

• I downloaded the TaxCut software from the Money magazine web site and installed it.

• Again, TaxCut loaded my previous year's tax return to get my basic information -- name, address, and so on. It had no problem reading last year's info from the TurboTax file.

• Everything looked good, but then I found that the Page-Up/Page-Down buttons didn't work.

• TaxCut also couldn't download information directly from Fidelity or Vanguard -- it wasn't even an option. So I entered that all that information by hand.

• The rest of the program ran very smoothly. It only asked if I wanted to upgrade once. It positioned me back at the bottom of the lists, rather than the top, saving me from having to scroll.

• For the long lists of stuff that doesn't apply, TaxCut just provided a list with a check box next to each. It then had detailed screens only for the checked items, so I didn't have to bring up a screen to see that I had no farm income received from being a pastor in the armed forces, stationed overseas. The 22 sources of income were reduced to 3 checks and then detailed screens only on the ones that mattered.

• But then TaxCut found an error. It had imported my state tax district as being Texas (W2, Box 15) from last year's return, but with no entry for a state income tax (W2, Box 17). Unlike TurboTax (which presumably created that information last year and ignored it this year), TaxCut didn't want the extra, unnecessary information. As with TurboTax, it was difficult to correct the problem -- I couldn't just erase the offending "TX" entry. In trying to fix that problem, it seems that I managed to delete my entire W2 -- all my income and withholding.

• The symptom of deleting my W2 was a cryptic comment about overfunding my IRA. It took a half an hour of trying to understand why it felt that I had overfunded my IRA before I was able to understand it thought I had no earned income. Then I had to re-enter all my W2 information.

• TaxCut was also confusing in its handling of the sales tax deduction. Since Texas has a sales tax, but no income tax, I am allowed to deduct my sales tax payments. And rather than add up all my actual sales tax payments, I just take the standard amount the IRS allows. This depends on your sales tax rate, which I gave as 8.25 per cent. But TaxCut already knows that I live in Texas, and that the state of Texas has a 6 per cent sales tax -- it wanted to know only the "extra" sales tax rate for my county and city. I told it 8.25 when I should have said 2.25 and it thought that an excessive sales tax.

• Once these were fixed, it printed my 10 page return plus a cover sheet. The ease of filling out the information was cancelled by the time it took to find and fix the errors, so again, it took about an hour and a half.

The results of the two programs look very much the same. There are minor font and layout differences, but both look like standard IRS forms. And the number are mostly the same. The two programs seem to round differently -- one lists taxable income as 640; the other as 641. But they both compute the same taxes, the same payments, the same refund. And both took about the same amount of time. Very comparable products.

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